Therefore, in the midst of efforts to strengthen its position as a producer of base metals and electric car batteries in the global supply chain, Indonesia needs to secure a lot of investment.
"The influx of investment in the base metals and electric car batteries has the potential to improve the structure of the trade balance and raise Indonesia's debt rating. Even though in terms of maintaining exchange rate stability, policy interest rate differentials must still be addressed,” Citi Indonesia chief economist Helmi Arman said.
According to Arman, the improvement in the structure of the foreign exchange market over the past two years has indeed been related to the high prices of export commodities, such as coal and palm oil. However, the role of base metal exports has also been significant and will continue to increase.
"It is interesting that the balance in the foreign exchange market from late 2020 until now has been relatively well-maintained, although there has been great pressure due to the withdrawal of foreign funds from the Indonesian bond market—after the withdrawal of the monetary stimulus and the increase in interest rates in America,” he noted.
According to the Citi Indonesia study, the contribution of exports of base metals and electric car batteries to Indonesia's trade balance could reach three percent of the gross domestic product (GDP) in the next three years.
In addition, if the dependence of the foreign exchange market on the supply of foreign fund flows to the capital market decreases and is accompanied by an increase in the supply of foreign exchange from exports, Indonesia's debt rating may improve from BBB to BBB+.
Furthermore, Arman expressed optimism that Indonesia will move forward with the development of new export sources at a time when many other countries are facing the prospect of declining exports and structural economic growth.
Indonesia is the world's largest nickel producer with 23.7 percent of the world's nickel ore reserves. It also has large reserves of cobalt.
The two base metals make up about 90 percent of the total components of electric car batteries.
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Translator: Muhammad Heriyanto, Katriana
Editor: Rahmad Nasution
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